‘Phantom Insurance’ Raises Scary Questions for Claimant

A questionable, if not illegal, insurance practice came up in a recent Jacksonville case. It started as a straightforward injury claim from a car accident, an admission of fault and a jury award. When the dust settles, it may be a cause célèbre for consumer advocates and insurance attorneys.

A Jacksonville man was in a car accident. The other car involved was a cab. The cab was associated with a local company that was a subsidiary of a large transportation business that operated taxi companies throughout Florida. When the injured man made his claim, the lawyer for the taxi company and the cab driver admitted they were liable. The case then went to a jury to determine damages for the claimant’s back and neck injuries.

Last week, the jury came back with an award of $241,000. The judge approved an additional $10,000 in costs. Up to this point, everything had gone smoothly.

When the injured man’s lawyers went to the company’s insurance company to collect the award, the insurance company filed a complaint in federal court. The insurer asserts that it has no obligation to pay because the maximum payout on the policy is $125,000, and the taxi company’s deductible is $125,000. This is a practice known as “phantom insurance.”

In Florida, a taxi operator is required to have insurance to cover bodily injury and property damage. The minimum coverage for bodily injury is $125,000 per person. In the case at hand, the required minimum is in place, but insurance policy is written in such a way that the insurer will never have to pay. It’s only responsible for up to $125,000 in damages, but the policyholder must pay the first $125,000 of that.

Under normal circumstances, the claimant would then turn to the taxi company for payment. However, the parent transportation went out of business, opening its doors a short while after under a new name. The original business is off the hook.

When the parties explained the situation to the judge who had presided over the award trial, the judge was just short of dumbfounded. After expressing his dismay that the taxi company could benefit as it did from this kind of insurance policy, he asked the company’s attorney, “Does your client ever pay?”

There are apparently several similar claims against the transportation company around the state. The company’s counsel maintains that there is nothing improper about the insurance policy. The injured man’s attorneys say that the phantom insurance policy sold by the insurance company is a clear violation of state and municipal financial responsibility laws. The question is one of public policy, he added.